Menu

The Nature of Nonprofits

Written by Union Graduate student Michael Reynolds

Nonprofits…What does that even mean? How does a nonprofit work, and how do they survive if they do not profit? Unfortunately, that is a question that many individuals still ask themselves, and its 2013! It’s abundantly clear that an increasingly disproportionate amount of people don’t even understand what a nonprofit organization is or their role in the community. The goal of this post is to dispel the cloud of confusion surrounding the nonprofit world and to discuss the real nature of nonprofit organizations.

Nonprofits are a key function of any flourishing economy. This is because they’re given financial incentives to operate organizations that otherwise wouldn’t be sustainable in the private sector. They’re businesses that operate under conditions where it wouldn’t be in any persons true financial interest to operate privately, but would be beneficial for the well-being of the community as a whole to have. The way the government compensates for these organizations to exist is by granting incentives like tax exempt status. The nature of nonprofits as seen by the government is to develop community/regional/national well-being in a charitable way through these organizations.

This begs the question, why then do nonprofits often not develop into healthier sized organizations to effect greater change? The answer is quite simple. When startup nonprofits finally generate cash flow they often reinvest that money directly into whatever cause they are supporting. This stymies the growth of any organization, especially nonprofits who feel a pressure not to profit from their charitable efforts. Marketing and advertising are areas of most NPO’s that are seriously underdeveloped. This can be directly attributed to the goals of donating back to “the cause” immediately rather than investing in the organization. In the private sector executives will invest money into advertising as long as their return on investment is negative. This means that private sector companies will keep spending on advertising until the return on investment is less than a penny per dollar spent. Why does it have to be different for a NPO? Why not develop a nonprofit that can become increasingly sustainable by reinvesting back in themselves? This would allow for an organization to develop into something that can affect MORE change and do MORE good for the community as a whole. The paradigm of nonprofit organizations needs to be altered, the way we think about charity needs to change. With this paradigm shift NPO’s can begin thrive, grow and compete in a marketplace dominated by the private sector.

By changing the framework for which we think about the world, we create limitless possibilities for innovation. In changing the way we understand and think about NPO’s, we can change the way we contribute to our own communities in a meaningful and worthwhile way.

To learn more about the topic of sustaining and managing NPO’s and charitable organizations, listen to Dan Pallotta’s INCREDIBLE Ted Talk about how we should think about charity.